Body Scapes,, Pune v. ITO, Ward 2(2), Pune, Pune

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIALMEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO. 1375/PN/09 (ASSESSMENT YEAR: 2003-04) M/S BODY SCAPES 120 SOHRAB HALL 21 SASSOON ROAD PUNE .. APPELLANT PAN AAEFB3286F VS. INCOME-TAX OFFICER .. RESPONDENT WARD 2(2) PUNE APPELLANT BY : SHRI NILESH KHANDELWAL RESPONDENT BY : SHRI ABHAY DAMLE ORDER PER G.S. PANNU A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II PUNE DATED 11.11.2009 WHICH IN TURN HAS ARISEN FROM A PENALTY ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 271E OF THE INCOME-TAX ACT 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. IN THIS APPEAL THE SOLITARY GRIEVANCE OF THE AS SESSEE IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN SUSTAINING PENALTY OF RS 1 96 000/- IMPOSED UNDER SECTION 271E OF THE ACT . 3. BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT IS A FIRM COMPRISING OF TWO PARTNERS AND RUNS A HEALTH CLUB. IT WAS NOTICE D THAT THE ASSESSEE FIRM REPAID IN CASH LOAN AMOUNTING TO RS 1 96 000/-TO SM T MEENA AGARWAL WHICH WAS IN CONTRAVENTION OF SECTION 269T OF THE ACT. TH E ASSESSING OFFICER HELD THAT THE ASSESSEE COMMITTED THE DEFAULT WITHOUT ANY REASONABLE CAUSE AND ACCORDINGLY PENALTY OF RS 1 96 000/- WAS IMPOSED IN TERMS OF SECTION 271E OF ITA NO 1375/PN/09 BO DY SCAPES PUNE 2 THE ACT. THE COMMISSIONER OF INCOME-TAX (APPEALS) H AS SUSTAINED THE PENALTY AGAINST WHICH THE ASSESSEE IS IN APPEAL BE FORE US. 4. BEFORE US THE LEARNED COUNSEL FOR THE APPELLANT CONTENDED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THERE WAS A RE ASONABLE CAUSE FOR NOT COMPLYING WITH THE REQUIREMENT OF SECTION 269T AND THEREFORE NO PENALTY UNDER SECTION 271E OF THE ACT WAS IMPOSABLE. IT WAS SUBMITTED THAT THE AMOUNT OF LOAN WAS REPAID IN CASH TO THE MOTHER OF A PARTNER WHO WAS ACTIVELY INVOLVED IN RUNNING THE BUSINESS AND IT WA S A BONA FIDE AND GENUINE TRANSACTION. RELIANCE WAS PLACED ON THE FOLLOWING D ECISIONS: A. CIT V BHAGWATI PRASAD BAJORIA (HUF) 263 ITR 487 (GAU) B. CIT V T R RENGARAJAN 279 ITR 587 (MAD) C. CIT V RATNA AGENCIES 284 ITR 609 (MAD) 5. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS DEFENDED THE IMPOSITION OF PENALTY BY CONTENDING TH AT THERE WAS NO REASONABLE CAUSE FOR THE DEFAULT AND THUS THE PENAL TY HAS BEEN RIGHTLY IMPOSED BY THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THIS CASE IT IS UNDISPUTED THAT THE ASSESSEE HAS REPAID A LOAN OF R S 1 96 000/- IN CASH WHICH IS IN CONTRAVENTION OF SECTION 269T OF THE AC T. SECTION 271E PRESCRIBES PENALTY FOR FAILURE TO COMPLY WITH THE PROVISIONS O F SECTION 269T OF THE ACT. HOWEVER SECTION 273B OF THE ACT PROVIDES THAT NOTW ITHSTANDING ANYTHING CONTAINED IN THE PROVISIONS OF SECTION 271E NO PEN ALTY SHALL BE IMPOSABLE FOR ANY FAILURE REFERRED TO IN THE PROVISIONS OF SECTIO N 269T OF THE ACT IF THERE IS A REASONABLE CAUSE FOR SUCH FAILURE. IN VIEW OF THIS IT IS APPARENT THAT THERE IS A DISCRETION LEFT WITH THE AUTHORITY CONCERNED WHETHE R TO LEVY THE PENALTY OR NOT IN THE GIVEN CIRCUMSTANCES OF A CASE. 7. IN THE CASE OF BHAGWATI PRASAD BAJORIA HUF (SUPR A) THE ASSESSEE HAD ACCEPTED LOAN IN CASH WHICH WAS IN CONTRAVENTI ON OF SECTION 269SS OF THE ACT AND A PENALTY WAS IMPOSED UNDER SECTION 27 1D OF THE ACT. THE ITA NO 1375/PN/09 BO DY SCAPES PUNE 3 HONBLE HIGH COURT APPROVED THE DELETION OF PENALTY BY THE TRIBUNAL BY OBSERVING AS UNDER: THE FACTS WHICH EMERGED IN THE CASE ARE THAT AS TH E RESULT OF ADVANCEMENT OF THE LOAN BY UMADUTTA JHUNJHUNWALLA ON THREE DIFFERENT D ATES THE ASSESSEE HAS EXECUTED THE PROMISSORY NOTES IN FAVOUR OF UMADUTTA JHUNJHUN WALLA. THE TRANSACTION OF LOAN HAS FOUND PLACE IN THE BOOKS OF ACCOUNT OF THE ASSE SSEE AS WELL AS THE LENDER OF THE LOAN. NONE OF THE AUTHORITIES HAVE REACHED THE CONC LUSION THAT THE TRANSACTION OF THE LOAN WAS NOT GENUINE AND IT WAS A SHAM TRANSACT ION TO COVER UP THE UNACCOUNTED MONEY. IT APPEARS TO US THAT THE ASSESS EE FELT NEED OF MONEY AND THUS HE APPROACHED THE MONEY-LENDER FOR A DVANCEMENT OF THE MONEY THE TRANSACTION IS REFLECTED IN THE PROMISSO RY NOTES EXECUTED BY THE ASSESSEE IN FAVOUR OF THE LENDER. WHEN THERE IS AN IMMEDIATE NEED OF MONEY THE PERSON CANNOT GET SUCH MONEY FROM THE NAT IONALISED BANK TO SATISFY THE IMMEDIATE REQUIREMENT. TO SATISFY THE I MMEDIATE REQUIREMENT OF MONEY THE PERSON NORMALLY APPROACHES THE MONEY-L ENDER OR HIS FRIEND OR RELATIVE WHO COULD LEND MONEY TO HIM TO SATISFY HIS IMMEDIATE REQUIREMENT. IN THOSE CIRCUMSTANCES IT CANNOT BE SA ID THAT THE ASSESSEE HAS ENTERED INTO A TRANSACTION TO AVOID THE PAYMENT OF TAX OR TO DEFRAUD THE REVENUE. THE ELEMENT OF MENS REA IS NOT BORNE O UT FROM THE NATURE AND THE MANNER IN WHICH THE TRANSACTION WAS CARRIED OUT. IN THESE CIRCUMSTANCES WE DO NOT FIND ANY JUSTIFICATION OR REASONABLE CAUSE TO REMAND THE MATTER FOR ADJUDICATION AFRESH BY THE CI T FOR CONSIDERATION OF REASONABLENESS WITHIN THE MEANING OF SECTION 273B O F THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE TRI BUNAL WAS JUSTIFIED AND CORRECT IN LAW IN UPHOLDING THE JU DGMENT OF THE CI T IN DELETING THE PENALTY OF RS 4 50 000/- IMPOSED ON THE ASSESSEE UN DER SECTION 271D OF THE INCOME-TAX ACT 1961 THOUGH FOR DIFFERENT REAS ONS. 8. IN OUR VIEW THE RATIONALE EXPOUNDED BY THE HON BLE HIGH COURT IN THE CONTEXT OF SECTION 271D IS APPLICABLE IN RESPECT OF SECTION 271E OF THE ACT ALSO AS BOTH THE PROVISIONS ARE PARI MATERIA. IN T HIS CASE IT IS EVIDENT FROM THE SUBMISSIONS OF THE ASSESSEE AS NOTED BY THE COM MISSIONER OF INCOME- TAX (APPEALS) THAT THE LOAN HAS BEEN REPAID TO A CL OSE RELATIVE OF THE PARTNER OF THE ASSESSEE FIRM BEING THE MOTHER OF ONE OF TH E PARTNERS. THE ASSESSEE HAD EXPLAINED THAT: THE BUSINESS WAS BEING CARRIED OUT BY TWO PARTNERS VIZ. VIREN MEHTA & JATIN AGARWAL. MR VIREN MEHTA NORMALLY STAYS IN MUMBAI AN D ALL THE DAY TO DAY ACTIVITIES AND ACCOUNTS ARE MAINTAINED AND LOOKED AFTER BY JAT IN AGARWAL WHO IS YOUNGSTER AND NEW TO BUSINESS. HIS MOTHER SMT MEENA AGARWAL WHO BECAME WIDOWED AT THE AGE OF 32 YEARS WAS HELPING HER SON AT WORK WHO HIM SELF WAS AN INEXPERIENCED YOUTH. NEITHER THE MOTHER NOR THE SON WERE WELL EXP ERIENCED IN THE BUSINESS AND WERE NOT CONVERSANT WITH SUCH INTRICATE PROVISIONS OF THE INCOME-TAX ACT. SOON AFTER THE BUSINESS TOOK OFF IN THE FY 2002-03 THE FIRM RETURNED THE LOAN RECEIVED FROM SMT MEENA AGARWAL IN CASH FOR MEETIN G HER PERSONAL EXPENSES WITHOUT REALIZING THAT UNDER SECTION 269T OF THE IN COME-TAX ACT THE AMOUNT SHOULD ONLY BE RETURNED BY CHEQUE OR CROSS DEMAND DRAFT. 9. FROM THE AFORESAID IT IS CLEAR THAT THERE IS NO DOUBT ON THE GENUINENESS OF THE LOAN TRANSACTION AND IT IS NOT A SHAM TRANSACTION TO COVER ITA NO 1375/PN/09 BO DY SCAPES PUNE 4 UP THE UNACCOUNTED MONEY. IT APPEARS THAT THE AMOUN T WAS RETURNED IN CASH TO THE MOTHER FOR MEETING HER PERSONAL EXPENSES AND THE ENTIRETY OF CIRCUMSTANCES DO NOT SHOW THAT THE TRANSACTION HAS BEEN DONE TO AVOID PAYMENT OF TAX OR TO DEFRAUD THE REVENUE AND NO MEN S REA IS BORNE OUT FROM THE NATURE AND MANNER IN WHICH THE TRANSACTION HAS BEEN CARRIED OUT. THEREFORE THE FACTUAL POSITION AND THE ATTENDANT C IRCUMSTANCES DO SHOW AN EXISTENCE OF A REASONABLE CAUSE FOR THE FAILURE OF THE ASSESSEE TO COMPLY WITH THE REQUIREMENTS OF SECTION 269T OF THE ACT IN REPAYING THE AMOUNT OF LOAN OF RS 1 96 000/- IN CASH TO SMT MEENA AGARWAL THE MOTHER OF THE PARTNER. IN THE RESULT WE FIND NO JUSTIFICATION FO R IMPOSITION OF PENALTY UNDER SECTION 271E OF THE ACT. 10. RESULTANTLY THE PENALTY IMPOSED UNDER SECTION 271E OF THE ACT AMOUNTING TO RS 1 96 000/- IS DIRECTED TO BE DELETE D. 11. ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PAN NU) JUDICIAL MEMBER ACCOUNTANT M EMBER PUNE DATED: 28 TH FEBRUARY 2011 COPY TO:- 1) M/S BODY SCAPES PUNE 2) THE ITO WD 2(2) PUNE 3) THE CIT (A) II PUNE 4) THE CIT II PUNE 5) THE DEPARTMENTAL REPRESENTATIVE A BENCH I.T. A.T. PUNE. BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B ITA NO 1375/PN/09 BO DY SCAPES PUNE 5